The Future of the Dollar Is Bleak

 

From an Austrian school of economics perspective the dollar is weak and growing more so every day, despite the fact that it is gaining against other currencies on an exchange rate model. There are some specific causes of this phenomenon, but the important point is that the dollar has been inflated massively and will continue to lose purchasing power against real goods and services, what the public and the press mislabel as inflation. The dollar's purchasing power will deteriorate at an ever-faster rate, primarily due to the Fed continuing to print dollars to fund the federal government's deficit spending and to spur the economy through monetary means. As Alasdair Macleod of GoldMoney.com has pointed out, the dollar already exhibits hyperinflation characteristics, because the federal government cannot fund its debt without the Fed's cooperation in monetizing it. Therefore, eventually the public will understand that the dollars in wallets and bank accounts will fall toward worthlessness and will begin to shed dollars in favor of real goods. Since the US monetary authorities are died-in-the-wool Keynesians and completely clueless to both history and sound economic and monetary theory, there is no hope for changing this outlook.

 

One would assume that the world is headed for disaster, but that would not be entirely correct. There is a new international currency in the works, sponsored by the Shanghai Cooperative Organization, sponsored by Russia, China, India, Pakistan, and other Asian nations. The new currency will be backed by commodities, including gold. It will be used first of all for settling international trade among its members. Be prepared for more countries to join this new group. Also be prepared for the Western press to paint the SCO and its new currency in the worst possible light, as if the members of this group were waging economic war on the West. Such is not the case. These countries are just wiser than the West. They have seen currencies collapse and know the chaos that ensues. Of course, it would be possible for the West to tie its currencies to commodities, as these nations are doing, but there is little hope of that happening. Our economic gurus will use the police power of the state to prevent the public from using this new currency.

 

At the current time the only safe haven is gold. Not electronically traded gold funds (ETF's), which are not fully backed by specie, but the real stuff. Gold is money. All the rest are currencies that may or may not be redeemable in real specie, i.e., gold. As the lapdog of the federal government, despite its claim to policy independence, the Fed will not use its very substantial gold holdings to back the dollar. To do so would be to expose the federal government's budget deficit and debt to reality. Without the Fed's debt monetization services, the interest rate required to fund the deficit would drive out all other borrowing, public and private. The federal government cannot balance its books without cutting entitlements, primarily Social Security and Medicare, or its military empire. Its current debt would be valued at less than junk bond status.

 

This is the reality of the future demise of the dollar. I wish it were not so.